Final Monthly Treasury Statement FY 2009 10-18-09

8/14/2019 Final Monthly Treasury Statement FY 2009 10-18-09

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1899 L Street NW Suite 400 Washington, DC 20036 Phone: 202-986-2700 Fax: 202-986-3696 www.crfb.org

CHAIRMEN BILL FRENZEL TIM PENNY C HARLIE STENHOLM

P RESIDENT M AYA M AC GUINEAS

DIRECTORS BARRY ANDERSON ROY A SH C HARLES BOWSHER STEVE COLL

D AN CRIPPEN VIC FAZIO W ILLIS GRADISON W ILLIAM GRAY , IIIW ILLIAM H OAGLAND D OUGLAS H OLTZ -EAKIN

JIM JONES LOU KERR

JIM KOLBE JAMES LYNN JAMES M CINTYRE , JR.D AVID M INGE

JIM N USSLE

M ARNE O BERNAUER , JR. JUNE ON EILLRUDOLPH PENNER PETER PETERSON ROBERT REISCHAUER A LICE RIVLIN M ARTIN SABO GENE STEUERLE D AVID STOCKMAN PAUL VOLCKER C AROL C OX W AIT D AVID M. W ALKER

JOSEPH W RIGHT , JR.

S ENIOR ADVISORS ELMER STAATS ROBERT STRAUSS

Review of the Final Monthly TreasuryStatement for Fiscal Year 2009

October 20, 2009

The Treasury Department and Office of Management and Budgetreleased the official budget results for Fiscal Year 2009. Highlights fromthe release include:

The deficit was a record $1.417 trillion, or 10 percent of grossdomestic product (GDP). This figure is very close to theCongressional Budget Offices (CBO) August estimate of$1.409 trillion, but somewhat below the Office of Managementand Budgets (OMB) midsession estimate of $1.580 trillion.Receipts totaled $2.105 trillion (14.8 percent of GDP) whileoutlays totaled $3.522 trillion (24.8 percent of GDP).

Total Receipts and Outlays as a Share of GDP

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P e r c e n t a g e o f G D P

40 Year Average Receipts: 18.2 Percent

40 Year Average Outlays: 20.8 Percent

Outlays

Receipts


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The Troubled Asset Relief Program (TARP) and the AmericanRecovery and Reinvestment Act (ARRA) account for 24 percent, or$340 billion of the deficit total. The stimulus and economic recoveryefforts therefore amounted to about 2.4 percent of GDP in the last fiscalyear.

The U.S. Government ran a deficit in every month of fiscal year 2009.This is unprecedented in the 29 years of data available on the TreasuryDepartment website. In most years the government runs surpluseswhen quarterly payments of estimated taxes or income tax returns aredue.

Total borrowing from the public increased to $7.544 trillion. As a shareof the economy, debt held by the public reached 53.4 percent.

The debt as a share of GDP increased by 12.6 percentage points infiscal year 2009. This is the largest annual change in debt as a share ofGDP since fiscal year 1945.

Debt Held by the Public (End of Year) as a Share of GDP

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P e r c e n t a g e

o f G D P

40 Year Average 36.4 Percent

Receipts

Total receipts declined year-over-year for the second consecutive year in 2009.Every major source of tax revenues declined in 2009, leading to a total drop inreceipts of $419 billion, or 16.6 percent, relative to fiscal year 2008. Over the pasttwo years, receipts have fallen by $463 billion, or 18 percent. Collections for the


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individual income tax and the corporation income taxes have declined relative toprior year in both 2008 and 2009.

Receipts by Source(By fiscal year in millions of dollars)

2009 Relative to 2008 2009 Relative to 2007Source 2009 2008 $ Change % Change 2007 $ Change % ChangeIndividual Income Tax 915,308 1,145,748 -230,440 -20.1 1,163,472 -248,164 -21.3Corporation Income Taxes 138,229 304,346 -166,117 -54.6 370,243 -232,014 -62.7Social Insurance and Retirement 890,918 900,154 -9,236 -1.0 869,607 21,311 2.5Excise Taxes 62,484 67,334 -4,850 -7.2 65,069 -2,585 -4.0Estate and Gift Taxes 23,482 28,844 -5,362 -18.6 26,044 -2,562 -9.8Customs Duties 22,454 27,568 -5,114 -18.6 26,010 -3,556 -13.7Miscellaneous Receipts 51,738 49,647 2,091 4.2 47,228 4,510 9.5

Total 2,104,613 2,523,641 -419,028 -16.6 2,567,672 -463,059 -18.0

Outlays

Fiscal year 2009 spending was up by $543 billion year-over-year. Of thatamount, $154 billion stems from the TARP, $113 billion is associated withspending authorized in ARRA, and $96 billion provided assistance to the FannieMae and Freddie Mac. Federal outlays grew at an annual rate of 18.2 percent,their fastest clip since 1975.

Almost two-thirds of all agencies saw outlays increase by double digits in fiscal

year 2009, while only three saw a year-over-year decline. Somewhatsurprisingly, the Department of Education was one of those agencies where netoutlays were lowerdespite the creation of the new State Fiscal StabilizationFund in ARRA, which spent $12.4 billion last fiscal year. The lower spendingwas the result of increased receipts in the student loan programs from changes inthe amounts and composition of student loans.

Some of the large increases in agency spending were related to automaticstabilizers as well as efforts to aid the economy. These increases include:

Unemployment Trust Fund (Labor) up $70.5 billion or 151.3 percent; Food Stamps (Agriculture) up $16.3 billion or 41.4 percent; and Medicaid (Health and Human Services) up $49.5 billion or 24.6 percent

(this is a result of both the recession and the increased match rateprovided in ARRA).


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Total Outlays by Agency(By fiscal year in millions of dollars)

Agency 2009 2008 $ Change % ChangeLegislative Branch 4,713 4,429 284 6.4Judiciary 6,643 6,345 298 4.7Agriculture 114,436 90,789 23,647 26.0Commerce 10,721 7,726 2,995 38.8Defense-Military 636,793 594,680 42,113 7.1Education 53,387 65,957 -12,570 -19.1Energy 23,684 21,404 2,280 10.7Health and Human Services 796,323 700,501 95,822 13.7Homeland Security 51,721 40,683 11,038 27.1Housing and Urban Development 61,024 49,086 11,938 24.3Interior 11,810 9,880 1,930 19.5Justice 27,713 26,544 1,169 4.4Labor 138,156 58,840 79,316 134.8State 21,435 17,506 3,929 22.4Transportation 73,006 64,945 8,061 12.4Treasury 703,172 548,819 154,353 28.1Veterans Affairs 95,490 84,783 10,707 12.6Corps of Engineers 6,840 5,077 1,763 34.7Other Defense Civil Programs 57,277 45,784 11,493 25.1Environmental Protection Agency 8,070 7,938 132 1.7Executive Office of the President 743 1,172 -429 -36.6General Services Administration 320 342 -22 -6.4International Assistance Programs 14,827 11,403 3,424 30.0NASA 19,168 17,834 1,334 7.5National Science Foundation 6,005 5,848 157 2.7Office of Personnel Management 72,302 64,393 7,909 12.3Small Business Administration 2,246 528 1,718 325.4Social Security Administration 727,549 657,799 69,750 10.6Other Independent Agencies 50,361 45,196 5,165 11.4Undistributed Offsetting Receipts -274,199 -277,789 3,590 -1.3

Total 3,521,734 2,978,440 543,294 18.2

Debt and Interest

In fiscal year 2009, total borrowing from the public increased by $1.743 trillion.

This amount is $324 billion larger than the increase in the deficit principally because of the increase in direct loan activity by the federal government in fiscalyear 2009. Direct loans are counted in the budget as the present value of theamount estimated not to be repaid. The face value of the loan must be borrowedfrom the public, however, which drives the debt upward. In 2009, the directloans for the purchase of mortgage-backed securities added $171 billion to thedebt, and direct loans through the TARP added $129 billion to the debt.


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Even though debt increased by over 30 percent in the past year, net interest onthe debt decreased. Outlays for budget function 900 dropped by $61.9 billion (-24.4 percent) to $190.9 billion in 2009.

Net Interest Costs

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B i l l i o n s

The drop in net interest costs is likely the result of a flight to safety by investorsduring the 2008 financial crisis; a similar reduction in net interest costs during atime of increasing debt occurred in fiscal years 2002 and 2003 after the 2001terrorist attacks on the United States. The budget is at risk of higher net interest

costs as a result of higher interest rates much as it was earlier in this decade.

This risk is attenuated because a large percentage of the nations debt is held bypeople outside of the United States. The Treasury and Federal Reserve Boardreport that foreign holders owned $3.449 trillion of Treasury securities as of theend of August 2009 ( http://www.treas.gov/tic/mfh.txt ). That amount isapproximately 46 percent of the total borrowing from the public at the end ofthat month. Foreigners increased their holdings of federal debt by $649.3 billionin the first 11 months of fiscal year 2009, absorbing 38.8 percent of the totalincrease in borrowing from the public. The balance of the increase was absorbedfrom within the United States, including the purchase of Treasury securities bythe Federal Reserve.

Foreign holders face both currency risk and interest rate risk in their holdings ofTreasury securities. To the extent that they perceive that they might be paid backin dollars that are worth less than the dollars that were used to purchase the


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securities, they may demand a higher interest rate. The United States has beenfortunate that some of its trading partnersChina, the United Kingdom, HongKong and Switzerlandhave chosen to increase disproportionately their share oftotal Treasury securities owned by foreigners.

Change in Holdings of Treasury Securities by Major Foreign HoldersFirst 11 Months of Fiscal Year 2009(Holdings at End of Month, in Billions of Dollars)

CountryAugust2009

Shareof

Total(%)

September2008

Shareof

Total(%) $ Increase

Share ofIncrease

%China 797.1 23.1 618.2 22.1 178.9 27.6Japan 731.0 21.2 617.5 22.1 113.5 17.5United Kingdom 225.8 6.5 112.8 4.0 113.0 17.4

Oil Exporters 189.2 5.5 171.2 6.1 18.0 2.8Caribbean Banking Centers 180.2 5.2 169.3 6.0 10.9 1.7Brazil 137.2 4.0 148.3 5.3 -11.1 -1.7Hong Kong 124.7 3.6 65.5 2.3 59.2 9.1Russia 121.6 3.5 99.6 3.6 22.0 3.4Luxembourg 94.2 2.7 104.5 3.7 -10.3 -1.6Taiwan 75.9 2.2 63.0 2.3 12.9 2.0Switzerland 68.2 2.0 49.7 1.8 18.5 2.8All Other 703.6 20.4 579.9 20.7 123.7 19.1

Total 3,448.8 100.0 2,799.5 100.0 649.3 100.0

Some of those trading partners have recently voiced concerns about the value ofthe dollar and the safety of Treasury securities as a store of value. They worrycontinued large deficits could lead to the monetization of the debt, reducing thevalue of the dollar and the purchasing power of their investments.

The Fiscal Year 2011 budget process must go beyond merely consideringproposals to put our country back on a firm fiscal footing, as OMB DirectorOrszag stated in last Fridays release. It is important that the President lead onthis issue rather than leaving the work to Congress to bring deficits down to asustainable level as the economy recovers, to use Secretary Geithners words.

If deficits are not brought under control soon, bondholders will demand higherinterest rates. This in turn will raise debt service costs, further increasing deficitsand debt, and creating a downward fiscal spiral that will only end with jarringchanges in fiscal policy. This might be prevented with timely action. Hopefullythe release of the fiscal year 2009 budget results provides the wake-up call thatpolicymakers need to get the Nations fiscal house in order.

Documents

Final Monthly Treasury Statement FY 2009 10-18-09